In the early 2000s, a thirtysomething scientist named Alan Collinge seemed to be going places. He had graduated from USC in 1999 with a degree in aerospace engineering and landed a research job at Caltech. Then he made a mistake: He asked for a raise, didn't get it, lost his job and soon found himself underemployed and with no way to repay the roughly $38,000 in loans he'd taken out to get his degree.
Collinge's creditor, Sallie Mae, which originally had been a quasi-public institution but, in the late Nineties, had begun transforming into a wholly private lender, didn't answer his requests for a forbearance or a restructuring. So in 2001, he went into default. Soon enough, his original $38,000 loan had ballooned to more than $100,000 in debt, thanks to fees, penalties and accrued interest. He had a job as a military contractor, but he lost it when his employer ran a credit check on him. His whole life was now about his student debt.
Collinge became so upset that, while sitting on a buddy's couch in Tacoma, Washington, one night in 2005 and nursing a bottle of Jack Daniel's, he swore that he'd see Sallie Mae on 60 Minutes if it was the last thing he did. In what has to be a first in the history of drunken bullshitting, it actually happened. "Lo and behold, I ended up being featured on 60 Minutes within about a year," he says. In 2006, he got to tell his debt story to Lesley Stahl for a piece on Sallie Mae's draconian lending tactics that, curiously enough, Sallie Mae itself refused to be interviewed for.
From that point forward, Collinge – who founded the website StudentLoanJustice.org – became what he calls "a complaint box for the industry." He heard thousands of horror stories from people like himself, and over the course of many years began to wonder more and more about one particular recurring theme, what he calls "the really significant thing – the sticker price." Why was college so expensive? (...)
But the main question is, how is the idea that the government might make profits on defaulted loans even up for debate? The answer lies in the uniquely blood-draining legal framework in which federal student loans are issued. First of all, a high percentage of student borrowers enter into their loans having no idea that they're signing up for a relationship as unbreakable as herpes. Not only has Congress almost completely stripped students of their right to disgorge their debts through bankruptcy (amazing, when one considers that even gamblers can declare bankruptcy!), it has also restricted the students' ability to refinance loans. Even Truth in Lending Act requirements – which normally require lenders to fully disclose future costs to would-be customers – don't cover certain student loans. That student lenders can escape from such requirements is especially pernicious, given that their pool of borrowers are typically one step removed from being children, but the law goes further than that and tacitly permits lenders to deceive their teenage clients.
Not all student borrowers have access to the same information. A 2008 federal education law forced private lenders to disclose the Annual Percentage Rate (APR) to prospective borrowers; APR is a more complex number that often includes fees and other charges. But lenders of federally backed student loans do not have to make the same disclosures.
"Only a small minority of those who've been to college have been told very simple things, like what their interest rate was," says Collinge. "A lot of straight-up lies have been foisted on students."
by Matt Taibbi, Rolling Stone | Read more:
Collinge's creditor, Sallie Mae, which originally had been a quasi-public institution but, in the late Nineties, had begun transforming into a wholly private lender, didn't answer his requests for a forbearance or a restructuring. So in 2001, he went into default. Soon enough, his original $38,000 loan had ballooned to more than $100,000 in debt, thanks to fees, penalties and accrued interest. He had a job as a military contractor, but he lost it when his employer ran a credit check on him. His whole life was now about his student debt.Collinge became so upset that, while sitting on a buddy's couch in Tacoma, Washington, one night in 2005 and nursing a bottle of Jack Daniel's, he swore that he'd see Sallie Mae on 60 Minutes if it was the last thing he did. In what has to be a first in the history of drunken bullshitting, it actually happened. "Lo and behold, I ended up being featured on 60 Minutes within about a year," he says. In 2006, he got to tell his debt story to Lesley Stahl for a piece on Sallie Mae's draconian lending tactics that, curiously enough, Sallie Mae itself refused to be interviewed for.
From that point forward, Collinge – who founded the website StudentLoanJustice.org – became what he calls "a complaint box for the industry." He heard thousands of horror stories from people like himself, and over the course of many years began to wonder more and more about one particular recurring theme, what he calls "the really significant thing – the sticker price." Why was college so expensive? (...)
But the main question is, how is the idea that the government might make profits on defaulted loans even up for debate? The answer lies in the uniquely blood-draining legal framework in which federal student loans are issued. First of all, a high percentage of student borrowers enter into their loans having no idea that they're signing up for a relationship as unbreakable as herpes. Not only has Congress almost completely stripped students of their right to disgorge their debts through bankruptcy (amazing, when one considers that even gamblers can declare bankruptcy!), it has also restricted the students' ability to refinance loans. Even Truth in Lending Act requirements – which normally require lenders to fully disclose future costs to would-be customers – don't cover certain student loans. That student lenders can escape from such requirements is especially pernicious, given that their pool of borrowers are typically one step removed from being children, but the law goes further than that and tacitly permits lenders to deceive their teenage clients.
Not all student borrowers have access to the same information. A 2008 federal education law forced private lenders to disclose the Annual Percentage Rate (APR) to prospective borrowers; APR is a more complex number that often includes fees and other charges. But lenders of federally backed student loans do not have to make the same disclosures.
"Only a small minority of those who've been to college have been told very simple things, like what their interest rate was," says Collinge. "A lot of straight-up lies have been foisted on students."
by Matt Taibbi, Rolling Stone | Read more:
Image: Victor Juhasz
